Wednesday, March 7, 2018

Nota bene: Holding Yale accountable

The Yale Daily News caused a minor Twitter storm on Sunday when it published correspondence from David Swensen, the legendary head of the Yale endowment. Swensen does not come off well in the emails, and the editors of the paper are quite right to be “disheartened” that he would take such a tone with them. (“I am furious - Don't you understand simple English? What is the matter with you?”)

There’s a backstory here, which, as the editors explain, concerns the fact that Swensen has not agreed to an on-the-record interview with his own university’s newspaper in years. Swensen is an extremely rich and successful man, who clearly doesn’t relish facing questions from impertinent students who fail to approach him with the requisite level of obsequiousness and awe. He doesn't feel accountable to the student body, even though on some level he works for them. Instead, he reads the student paper, and seethes, and bides his time, waiting for the perfect opportunity to strike with maximum superciliousness.

Swensen found that moment earlier this month, when the paper published a dispatch from a teach-in criticizing the endowment. The event featured a number of speakers, making many different points. Some wanted to ensure that the endowment doesn’t hurt the environment, for instance; others asked whether it can help make reparations for slavery.

One of the points made in the piece, which was buried halfway down the article, was about the Yale endowment’s connections to the private prison industry. That particular criticism turned out to be based on a misunderstanding, and Swensen saw his opportunity: after years of refusing to speak to the Daily News, he sent them a blistering op-ed complaining that the newspaper “frequently fails to meet fundamental journalistic standards.” He added that an editor should have noticed the errors and prevented them from being printed.

Ironically, Swensen’s own letter contained an error — he incorrectly said that the reporter did not contact the investment office before filing her story. Fortuitously enough, Swensen’s error was intercepted by an editor, but instead of thanking the News for its editors’ keen eyes, Swensen went ballistic, complaining that, well, his error had been corrected.

The fight between Swensen and the student newspaper soon reached Finance Twitter, and the FT’s John Authers even wrote a column about it (which you probably can’t read because it’s behind an ultra-high paywall). Authers ultimately sides with Swensen, saying that he’s substantively right in his complaint, and that the corrected Yale Daily News story looks “a little silly”.

To which I say: No, it really doesn’t, and insofar as it does, that’s mostly Swensen’s fault, for refusing to engage with his critics. There are important points in the original article, and I’m sure there have been equally important points in previous articles. Swensen ignores all of those points, which makes him at best intellectually disingenuous and at worst a cynical bully.

There are lots of perfectly good responses to people complaining about, say, Yale holding a large position in Puerto Rican debt: it’s not hard to defend vulture funds if you want to. But if you don’t want to defend what you’re doing, it’s entirely legitimate for the university newspaper to report on people who are criticizing you.

For far too long, endowment directors have been happy to convince themselves that their only job is to generate healthy long-term risk-adjusted returns, and that moral considerations should not apply when it comes to investing. Those days are clearly over, but the old guard, including Swensen, has failed to keep up with the times. If Swensen isn’t willing or able to defend his amoral investing philosophy, it’s probably time to replace him with someone more accountable.